Millennium Post

Wholesale inflation reverses 6-month decline, up to 0.11%

Wholesale price index (WPI) based inflation moved up marginally in December to 0.11 per cent from zero level in November, reversing the six month declining trend. The slight increase in inflation rate was due to spurt in ‘food items’ basket. Food inflation in December moved to 5-month high of 5.2 per cent, as per the government data released on Wednesday.

While inflation in pulses, vegetables and fruits was higher in December over the previous month, it eased in wheat, milk and other protein rich items like egg, meat and fish.

“To give a boost to the capex cycle, there is an urgent need for lowering of lending rates. Since the inflation is largely under control, we urge the RBI to ease the monetary policy stance,” industry body Ficci’s President Jyotsna Suri said. The data showed inflation in fuel and power segment contracted sharply by 7.82 per cent, as against 4.91 per cent in November.

The Reserve Bank, which has kept key interest (repo) rate unchanged at 8 per cent, is scheduled to announce its next monetary policy on February 3. Global oil prices have slumped to near 6-year low of around USD 46 a barrel helping importing countries like India to cut back on their dollar payments as well as ease retail prices, which in turn calm inflation.

The retail inflation measured on consumer price index (CPI) for December too had inched up to 5 per cent while it was 4.38 per cent in November. The data further revealed that the inflation in the primary articles segment shot up to 2.17 per cent in December, as against a decline of 0.98 per cent in November. CII Director General Chandrajit Banerjee said the industry body hopes that the “conducive inflationary situation” would spur RBI to move away from its inflation- centric approach to “policy making and focus on rejuvenating growth in the economy and industry, in its forthcoming monetary policy”.

The WPI inflation was on the decline since June before it inched up marginally in December. The rate of price rise was also slower at 1.57 per cent in December as compared to 2.04 per cent in previous month. Meanwhile, the government has revised downwards the October WPI inflation to 1.66 per cent as against the earlier estimate of 1.77 per cent.

ICRA senior economist Aditi Nayar said the December prints for CPI and WPI inflation have been lower than the consensus, and the fall in crude oil prices has further brightened the outlook for low inflation, fuel subsidies and the current account balance. “We maintain our expectation that the RBI will commence a rate cut cycle post the presentation of the Union Budget at the end of February 2015,” she said.

Research firm Nomura expects the sharp fall in input costs to boost corporate profit margins in 2015 and act as a tailwind to India’s growth recovery. Chairman and Managing Director of Angel Broking Dinesh Thakkar said that in the near future, inflation is expected to be structurally lower on account of lower crude oil prices and broader interest rates to fall at least by 100 basis points over next 12 months, which would be one of the key catalysts for economic growth going forward.
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